Welcome to this Canadian Studies blog. Its an on-line, on-going open letter on subjects that interest me or seem important to Canada. I welcome comments and criticism, but not flames.

Saturday, June 01, 2013

Capitalism and Wages Part II

In my last blog, I was trying to explain something about capitalism and how it functions, at least on a theoretical level. In particular, I was trying to explain the way a market works. I did this because I periodically hear people talking about "lazy" workers who will not work for such and such a wage. I was trying to explain that complaining about lazy workers is, well, bad capitalism. From a capitalist perspective, the issue is not are workers lazy or not. Capitalists begin from the assumption that all people are self interested and for most of us this involves doing something we like a lot better than working. In other words, the so-called lazy worker, from a capitalist perspective, is not doing anything bad or unusual. They are making a choice about whether or not they will work for a certain wage. If they elect not to, they are not lazy, but simply making a choice. We might agree or disagree with their choice but our perspective, in a market economy, is a moot point. Moreover, the issue is not laziness, but how one attracts more workers. Capitalists should not try to get more workers by berating people for being lazy. Instead, they should use market based incentives to expand the supply of labour. The problem is irrelevant; the solution should come from the market.

I also wondered out loud why so many people who call themselves capitalists -- or who support capitalism -- get this wrong. Why do they complain about lazy workers (just as an example that I happen to be working with) rather than doing what the market tells them to do: increase wages. I suggested that this might be because most people, somewhere inside, feel there is something wrong with capitalism. Let's follow Antonio Gramsci and call this a "good sense" perspective on capitalism. The demonstrate the fact that they think there is something wrong with capitalism but thinking in terms that are not capitalist. They think about the morality of working, as opposed to market incentives. This suggests to me that most people see work in moral as well as economic terms and that they don't differentiate that morality too much from the market. In other words, instead of seeing wages as a product of supply and demand, they think of wages in terms of an appropriate wage or a just wage.

Now, again, it is worth pointing out that in a market economy, there is no such thing as an appropriate wage that we can specify in advance. Wages are determined, theoretically at least, by a market for labour. The boss has as much to do with the price of labour as the workers. There is give and take. If there are a bunch of workers available to work and who will take a lower wage, that becomes the appropriate wage in a market economy. If there are not a lot of people who will work for wage X, then the boss has to offer X+ in order to get labour and that becomes the appropriate wage. Said differently, there is no way to say that $10.00 an hour or $15.00 an hour is appropriate in advance of market determination. Yet, people -- neither bosses nor workers -- do that. Why not?

Let's look at bosses. I also hear friends say "employer X cannot pay more than [pick a figure] $10.00 hour or else they will not turn a profit and their business will go under." Exactly. The problem is that people think that from a capitalist perspective that there is something wrong with the business going under. (Now, to be sure, I am not a capitalist so I am explaining things; not advocating.) This is precisely what is supposed to happen in a market economy. Rather than trying to find a way to get workers to work for less -- importing workers from another country say, or getting the government to pay part of their freight -- what is supposed to happen is that the employer is supposed to realize that they do not have a profitable business and close down, shifting their resources (capital, abilities) to another company. In other words, failing businesses is part of capitalism that is supposed to happen. It is a market signal that that business is not viable. By knocking off unviable businesses, theoretically, the economy is left stronger. Only the viable businesses are left. We might feel bad for the employer but she or he is the capitalist and they can hardly argue about the rule of a game that they support. After all, if the business was viable, they'd take the profits.

Put in other words, the argument "employer X can only pay amount Y or their business will fail and so workers have to work for amount Y" is a profoundly moral argument, but it is not a market capitalist argument. Labour, for a capitalist, is just another factor of production. To complain that one cannot get labour at the rate of pay one wants is like complaining that minerals don't jump out of the ground for a lower price than it takes to mine them or that trees don't cut themselves. From a capitalist perspective, it is silly. The capitalist has to pay for all factors of production (capital, rent, labour) and if they cannot, their business will collapse. If a refinery cannot pay for oil, it closes down. Likewise, with labour.

Now, I recognize that all this sounds rather cold and heartless. And, it might be. There are moral arguments that can be made for capitalism and I will try to make them in the future. I will try to make them because I think that capitalism is, in part, held up not just by the market but by moral arguments related to individualism and responsibility. But, it is important to note that the market is a-moral. Drugs function according to market logic; prostitution does too. The market does not differentiate between what people find moral and what they don't. It provides goods for which there is a demand when someone is willing to pay for them. It does not matter what that good is (dangerous chemicals, weapons, endangered species, etc.). And, I suppose, this is one lesson I'd like people to learn: people have morality; the market does not. Its moral is "you get what you pay for."